Question

Which of the following is NOT a hurdle that the taxpayer must clear to be eligible to deduct an operating loss from a flow-through entity?

1) Material participation requirement
2) At-risk rules
3) Passive activity loss limitations
4) Capital gain limitations

Answer 1

The taxpayer does not need to clear the Capital gain limitations to deduct an operating loss from a flow-through entity.

Step-by-step explanation:

From the given options, the hurdle that the taxpayer does not need to clear to be eligible to deduct an operating loss from a flow-through entity is the Capital gain limitations.

1) Material participation requirement: This hurdle requires the taxpayer to actively participate in the business to claim deductions.

2) At-risk rules: This hurdle limits the amount of deduction a taxpayer can claim to the amount they have at risk in the business.

3) Passive activity loss limitations: This hurdle restricts the deduction of passive activity losses to the extent of passive income.

Therefore, the correct answer is 4) Capital gain limitations.